How ETFs work?

ETFs are securities certificates that state legal right of ownership over part of a basket of individual stock certificates. Several different kinds of financial firms are needed for ETFs to come into being, trade at prices that closely match their underlying assets, and unwind when investors no longer want them.

Laying all the groundwork is the fund manager. This is the main backer behind any ETF, and they must submit a detailed plan for how the ETF will operate to be given permission by the SEC to proceed.

Why Exchange Traded Funds?

Exchange-Traded Funds, or ETFs, are index funds that trade just like stocks on major stock exchanges. Want to invest in the market quickly and cheaply? ETFs are the most practical vehicle. They help the investor focus on what is most important, choice of asset classes.

All the major stock indexes have ETFs based on them, including:

Dow Jones Industrial Average

Standard & Poor's 500 Index

Nasdaq Composite